In early 2009 both Paul Krugman and Brad DeLong frequently argued that we needed to use fiscal stimulus because the Fed was out of ammunition. These posts and articles contributed to an appalling lack of understanding of the role of monetary stimulus, especially on the left. Even Matt Yglesias has conceded that this is a weak spot for progressives. Of course that’s not to say that these two figures never said unconventional monetary stimulus was worth a shot. But the vast majority or readers assumed that they were saying the Fed was out of ammunition, as that’s the message they highlighted. Obviously things changed later on, and now both are demanding monetary stimulus from the Fed.

I see that Brad DeLong is now trying to rewrite history, and deny he made these claims. This surprises me, as he wrote an article for The Economists Voice (published in February 2009) that was almost entirely devoted to the proposition that monetary stimulus (and several other options) were not feasible, and hence Obama’s fiscal stimulus plan was the only solution to the recession. Just a month later I published a rebuttal in the same journal. Indeed I got into blogging primarily because I was appalled by what I was reading in the other blogs during late 2008 and early 2009. Almost no one was talking about how tight money was driving NGDP sharply lower, and dramatically worsening the recession.

I’ll say this in defense of Brad DeLong; he didn’t go off the deep end like Krugman did in response to the Romney economic paper. I read all the criticism, but when I looked at the paper I couldn’t find a single place where they had misquoted anyone. The fact that the people they relied on don’t entirely agree with their conclusions is not surprising. All papers in support of campaign promises are going to rely on rosy scenarios. But why the big fuss? It seems to me that Taylor, Hubbard, Mankiw and Hassett quoted each paper accurately. I’ve seen Krugman quote papers and then leave out the part that conflicted with his views. And yet he throws around terms like “fraud.”

Update: I see that commenters Patrick Sullivan and Steve are finding other examples. Thanks google. I wish I had time to dig through his old blog posts–I could find dozens of examples.

Update: Mark Sadowski commented as follows:

Scott,
You should provide a link to your Economist’s Voice article so people don’t have to search for your rebuttal:

————–quote—————
Only if you think that there are additional large costs lurking down the road – that the stimulus has destabilized price expectations and set in motion a destructive spiral of deflation, or that the stimulus has used up America’s debt capacity, driving up debt-service costs to a prohibitive level – can the social profit turn negative. Neither of those things has happened. The long-term nominal and real Treasury rates continue to be absurdly low, so much so that I rub my eyes whenever I see them. And the market inflation forecast – the spread between Treasury Inflation-Protected Securities and normal Treasuries – remains extremely tame.

So I really cannot understand Barro’s last paragraph: “The fiscal stimulus package of 2009 was a mistake. It follows that an additional stimulus package in 2010 would be another mistake…”
CommentsIt is as if he has not done his own arithmetic.
—————endquote————–

And, Brad’s Big Finish;

‘And when taxes are levied to retire the added debt induced by the stimulus, they will be levied at some time at which nominal interest rates are not stuck at zero. The Federal Reserve will thus be able to ease monetary policy then to offset the fiscal drag.’

“Obviously things changed later on, and now both are demanding monetary stimulus from the Fed.”

I’m not sure this represents any major change in their thoughts regarding the relative strength of monetary vs fiscal policy, rather they’ve realised that it’s completely futile to try and rally congress to engage in more fiscal stimulus at this point, it’s not politically possible, whereas more additional monetary easing is still in with a change.

I disagree. DeLong and Krugman wrote too many articles where they talked about the zero lower bound and dismissed monetary stimulus. They’re both smart enough guys that they usually give themselves an out, but I can say that same of demagogues on the Right as well.

My general assumption has been the Krugman, DeLong, and others of the center-left, not entirely against market persuasion (thinking of The New Republic, Jonathan Chait, others) who are particularly partisan and vicious against “the other side” do so in order to convince those further to the Left than they’re really part of the team. Otherwise their pro-market (with regulation) sympathies might make them be suspected by the further left. But so long as they’re screaming about fraud and Republican perfidy, no problem.

That doesn’t mean that I find it all that moral, but I think it’s an understandable deliberate tactic. It has more appeal to me as an explanation than the idea that these two very smart men are just awful inconsistent jerks for no reason.

Delong and Krugman both use this rebuttal style that deliberately misses the forest through the trees, pointing out a line here or there while intentionally ignoring the larger picture. Delong did not go whole hog into the vulgar Keynesianism of “pushing on a string,” but both blogs in late 2008 early 2009 overwhelmingly gave the impression that fiscal policy was the main tool to use. I know this because *I got this impression from reading their blogs* and didn’t learn about the alternate view until I started reading this one.

I tried to post these to Brad’s site yesterday but he deleted my comment…

January 19, 2009:
“The fact that monetary policy has shot its bolt and has no more room for action is what has driven a lot of people like me who think that monetary policy is a much better stabilization policy tool to endorse the Obama fiscal boost plan.
The fact that Gary Becker does not know that monetary policy has shot its bolt makes me think that the state of economics at the University of Chicago is worse than I expected–but I already knew that, or rather I had thought I already knew that.”http://delong.typepad.com/sdj/2009/01/will-gary-becker-please-return-from-the-gamma-quadrant.html

@Pietro: a single central bank is the monopoly supplier of a particular currency, so it controls the nominal effects within the currency area that uses that currency. US dollars happen to be used a bit wider than just in US territory, but roughly speaking, the US Fed has absolute control of nominal economics within the US.

What other central banks do with their currencies is pretty much irrelevant. Floating exchange rates will keep everything in balance, whatever they choose to do.

So, yes: the US Fed _should_ unilaterally adopt NGDPLT, with no concern at all for what other central banks are doing.

‘I tried to post these to Brad’s site yesterday but he deleted my comment…’

Yes, and the reason is what John Thacker said above. DeLong started the policy of surreptitiously deleting comments from those who were person non grata;

‘…in order to convince those further to the Left than they’re really part of the team. Otherwise their pro-market (with regulation) sympathies might make them be suspected by the further left. But so long as they’re screaming about fraud and Republican perfidy, no problem.’

Now, thanks to capitalism’s technological innovations, he can eliminate his problem before it becomes embarrassing.

‘I tried to post these to Brad’s site yesterday but he deleted my comment…’

Yes, and the reason is what John Thacker said above. DeLong started the policy of surreptitiously deleting comments from those who were persona non grata;

‘…in order to convince those further to the Left than they’re really part of the team. Otherwise their pro-market (with regulation) sympathies might make them be suspected by the further left. But so long as they’re screaming about fraud and Republican perfidy, no problem.’

Now, thanks to capitalism’s technological innovations, he can eliminate his problem before it becomes embarrassing.

I do find it curious the way Center-Right and Right-wing economists have enjoyed calling Krugman and other prominent center-left economists like Krugman, DeLong (who often gets called names by the left as well), or slightly less prominent, Menzie Chinn names (other farther left economists like Dean Baker, Peter Dorman, or Jaimie Galbrath they just pretend do not exist). At the same time how thin skinned the Scott Summers, Tyler Cowen, and Steve Williamson’s of the world are when they are robustly challenged.

As to the issue at hand Krugman and DeLong started stated in late 2008, 2009, and the 2010 is that the U.S. had entered a “liquidity trap” and that “traditional monetary policy” based on interest rates no longer worked as the they reached the zero bound. As Krugman wrote in May of 2009 in response to you, you and he apparently have different definitions of a liquidity trap.

“…Well, my definition of a liquidity trap is, purely and simply, a situation in which conventional monetary policy “” open-market purchases of short-term government debt “” has lost effectiveness. Period. End of story.
“http://krugman.blogs.nytimes.com/2009/03/02/a-quick-response-to-scott-sumner/”

Krugman goes on to say that if the Fed was to engage in nominal inflation targeting above the 2% range that would help, but (given the make-up of the 2009 Fed Board of Governors) he did not think it was realistic.

As for the Krugman going off the “deep end” about Mankiw, Taylor, Hubbard joining “Dow 36,000” Hassett as Romney economic hacks, he is certainly no more off the deep end then Simon Wren-Lewis, who as a Brit, does not have a dog in the fight.

“…”The negative effect of the administration’s ‘stimulus’ policies has been documented in a number of empirical studies.” They then quote from two studies. The first looks at a minor aspect of the stimulus packages, the Cash for Clunkers attempt to bring forward car purchases. There are other studies of this programme which are more favourable. The second study is co-authored by John Taylor, and others have interpreted his findings differently.

No other studies are directly referred to. That might just be because the overwhelming majority suggest that the stimulus package worked. Dylan Matthews on Ezra Klein’s blog documents them here. As I wrote in a recent post, the evidence is about as clear as it ever is in macro. Which is not too surprising, as it is what Mankiw’s textbook suggests, and it is what the New Keynesian theory both authors have contributed to suggests…” http://mainlymacro.blogspot.com/2012/08/giving-economics-bad-name.html

I think you assume that if Romney-Ryan win, then, since a stimulus program will no longer help Team Obama-Democrats, and in fact the Republicans will have the incentive to see the economy grow since they will own it, that all the Taylors, Cochranes, Ryans, etc. will come all out for the Fed to raise the inflation target and aim to increase nominal GDP. However, I think you underestimate how Team Republican has drunk the Austrian and return to the Gold Standard Kool-aid. And all those Government spending cuts will be also be cutting someone else’s income. It will be an “interesting” 2013-14 when this experiment is carried out of austerity and monetary tightening in a depressed economy.

@Pietro: Prof Sumner often says, “never reason from a price change”. You need to figure out what you’re keeping fixed.

Try this thought experiment: a country decides to redenominate its currency, by knocking a zero off the end (after decades of inflation). Everybody knows it’s coming. At a particular time and day, all the old “pesos” get retired, and “new pesos” replace them at a 10:1 ratio.

Clearly, exchange rates will also change 10:1 on that day and time. But there should be essentially no effect on imports or exports, right?

I’m not an expert here, but I suspect that exchange rates that change based on differing inflation between the two countries, would have pretty much the same non-effect on the trade of real goods.

Beware of erecting straw men. “Misquoting” is far from the only form of malfeasance in this area. The Romney white paper does not meet ordinary standards of intellectual integrity. We can quibble about whether to call it “fraudulent,” but it does reflect rather poorly on its authors.

I just don’t get it. I don’t know how anyone can go back and read through DeLong’s old posts and not come away believing that DeLong thinks monetary was insufficient and that fiscal was the only game in town.

I think this is the most damning of the DeLong quotes: “The fact that Gary Becker does not know that monetary policy has shot its bolt makes me think that the state of economics at the University of Chicago is worse than I expected”

To be fair to Kuehn, I guess you should include the prior sentence, so you get:

“. . .there is no room for the Federal Reserve to cut interest rates, and so monetary policy is reduced to untried “quantitative easing” experiments.

The fact that monetary policy has shot its bolt and has no more room for action is what has driven a lot of people like me who think that monetary policy is a much better stabilization policy tool to endorse the Obama fiscal boost plan.

The fact that Gary Becker does not know that monetary policy has shot its bolt makes me think that the state of economics at the University of Chicago is worse than I expected–but I already knew that, or rather I had thought I already knew that.”

I think that if you bend over backwards to be charitable to DeLong, then he should be understood to be saying: (1) the Fed can’t provide additional monetary stimulus through the interest rate mechanism; (2) therefore, any additional monetary stimulus can only be “untried ‘quantitative easing’ experiments.”; (3) DeLong doesn’t think that the aforesaid QE experiments will produce monetary stimulus; (4) DeLong thinks that Becker is an idiot.

On (4), it’s not clear if DeLong believes that Becker is idiot because Becker thinks there is more room to lower interest rates or if DeLong thinks that Becker is an idiot because Becker prefers the UQEE to fiscal stimulus.

I think its also telling that DeLong now builds into his formal models the possibility of the fed offsetting fiscal stimulus. In 2009 he is saying monetary policy is out of sure tools so we turn to fiscal policy for a sure tool. Now he is saying monetary is always active and dominates fiscal. I think in retrospect not mentioning that fiscal policy requires conscious accommodation from the fed is more wrong than having doubts about QE (claiming QE is the only available monetary tool seems wrong too though).

If you say monetary policy will definitely work then you must believe that either the fed will react differently to fiscal inflation than monetary which is extremely speculative and cannot be said with certainty by anyone. Or you are saying that the fed can no longer target inflation, which I’m pretty convinced is what he thought.

I’ve read nearly every blog post they’ve written since the crises started.

Their views have very consistently been:
a) Conventional monetary policy is out of steam (zero-bound)
b) Fiscal stimulus would have the next largest impact on the economy
c) QE would, at best, have a small reward, given a large risk (supported by Goldman and PIMCO, Japan’s experience, etc)
d) BUT, now, the FED should do more QE given all other policy options seem politically infeasible

I see two possible arguments you might be trying to make and both are wrong:

1) That Krugman and DeLong were inconsistent in their views of QE? That’s wrong. They thought QE was low bang for buck early on and they think that today. What’s changed is that they no longer see more fiscal stimulus as politically feasible. Thus the outcry for the FED to do SOMETHING. ANYTHING.

2) That in saying “conventional monetary policy is out of steam” Krugman and DeLong are perpetrating some kind of stealth effort to discredit QE? This is hilariously wrong. First, when they want to discredit QE, they attack it directly by showing how little effect it probably has. Second, any discussion of QE is usually coupled with an explanation of how it differs from conventional monetary policy. In other words, they take pains to SEPARATE the two things.

Scott – you may be happy to note that John Taylor has decided to enlist you as part of Team Romney. To be fair to you – me thinks John is sort of abusing your post here. But hey!

You may be also happy to know that you’ve attracted a Donald Luskin wannabe – one Patrick R. Sullivan. Yes Brad deletes his troll posts but not for the reason Patrick noted above. Be careful with this troll – he actually makes Mitt Romney look like an honest man. Cheers!

[…] and books that are cited are quoted correctly and do provide supporting evidence. As Scott Sumner reports “when I looked at the paper I couldn’t find a single place where they had misquoted anyone.” […]

[…] a bunch of us went nuts at the time, pointing out what a total rewrite of history this was. (E.g. here’s Sumner.) I can’t find the link, but at the time DeLong bit my head off for daring to suggest that he […]

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Welcome to a new blog on the endlessly perplexing problem of monetary policy. You’ll quickly notice that I am not a natural blogger, yet I feel compelled by recent events to give it a shot. Read more...

Bio

My name is Scott Sumner and I have taught economics at Bentley University for the past 27 years. I earned a BA in economics at Wisconsin and a PhD at Chicago. My research has been in the field of monetary economics, particularly the role of the gold standard in the Great Depression. I had just begun research on the relationship between cultural values and neoliberal reforms, when I got pulled back into monetary economics by the current crisis.